Investors prefer equity-linked MFs to debt funds in region

Vijay C Roy

Tribune News Service

Chandigarh, June 13

Lack of awareness and shortage of wealth advisers are the reasons for stunted growth of debt-based mutual funds in the northern states as compared to Gujarat and Maharashtra.

The equity-linked mutual funds are preferred option in the northern region comprising Haryana, Punjab, Chandigarh, Himachal Pradesh and J&K, investment advisers and banking industry experts said.

The mutual funds in the region are managing assets worth Rs 50,000 crore, which is far less than the investment potential of these states, they said. The debt instruments have a share of less than a quarter of the total investments. In the southern and the western regions, one-third of total investments are in the debt-based mutual funds, experts said.  

“We have seen that investors’ participation in debt mutual funds is low, especially in this region. This is because of small presence of wealth advisers in the region as compared to western and southern regions,” said SBI Mutual Fund MD and CEO Anuradha Rao.

The investment in mutual funds in the region is witnessing higher growth than traditional saving instruments such as bank and term deposits with preferred option being equity MF. Debt funds are, however, considered to be less risky when it comes to investing in a product that can give decent inflation-beating returns along with tax benefit.

Rahul Jain, Head – Edelweiss Personal Wealth Advisory , said the investor landscape is changing dramatically. “The new breed of investors is hungry for information and right content. Companies are utilising their digital strengths and processes to tap this customer segment which was earlier under the radar and difficult to reach. There is a huge opportunity to become partners with them in their wealth-creation journey. Technology can help one achieve high geographic reach, providing relevant and unbiased advisory and customer delight; all at the same time,” he said.

Debt funds include various funds investing in short term, medium term and long term bonds. As a thumb rule, the longer the investment horizon, the better is one’s ability to withstand intermediate volatility and, thereby, enhance expected return.

According to wealth advisers, debt funds are preferred by individuals who are not willing to invest in a highly volatile equity market. A debt fund provides a steady but low income relative to equity and comparatively less volatile.

The SBI MF is planning to introduce a digital tool that will act as single point reference for all investment needs. “The tool will empower the financial adviser to do analytics on customers’ investments. It will assist the adviser in sales, service and analytics,” Rao said. SBI MF manages around Rs 8,700 crore in the region out of its AUM of Rs 2.40 lakh crore. 

What are debt funds…

• Debt funds are MFs that invest in fixed income securities like bonds and treasury bills. The investment options include Gilt fund, monthly income plans, short term plans, liquid funds and fixed maturity plans etc
• According to financial advisers, MFs are managing assets worth Rs 50,000 crore in the northern region, which is far less than the investment potential of these states